Sansiri
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One step back for sustainable steps forward After a feeble 1H13 showing, SIRI has sent a clear message by its determined efforts to streamline its operations, especially SG&A. Emphasis is more on margins, efficiency and ROE. We foresee a sequential rise
We cut our FY13-15 EPS by 5-8% (on
concerns about transfers and SG&A)
and our target price, now based on
11x CY14 P/E, 1.5 s.d. above the
6-year mean (given short-term
growth slowdown due to streamlined
operations and reversal of fund flows
from TIP markets) vs. 14x CY14 P/E
previously. Still, its valuation is cheap
with an attractive yield of 8% and
solid catalysts (big jump in 4Q13
earnings). Reiterate Outperform.
What Happened
Although SIRI’s FY13 transfer target
was 80% locked in by backlog, SIRI
admitted that it will be challenge to
fill the remaining 20% gap by the sale
of finished inventories and new sales
of SDH/TH with a short cash
turnaround cycle given the softer
economic outlook. Still, management
retains its target and will be more
focused on streamlining its
operational expenses, i.e. more
effective SG&A control (e.g. adopting
more pooling marketing expenses and
below-the-line ads, scaling down sale
office, etc), to boost the bottomline.
What We Think
Despite the disappointing 1H13
results, we anticipate a 2H13 earnings
recovery for SIRI. We are encouraged
that SIRI has acknowledged its high
SG&A spending and has started
tackling the issue more seriously
following its 1Q13 net loss. However,
accounting issues surrounding
amortisation expenses at its sales
offices for condo projects that were
presold exceptionally quickly in 1Q13
backfired on its 2Q13 earnings. As the
take-up rates of the remaining
presold projects normalised from
2Q13 onwards, we believe it was a
one-off effect. We expect 2H13 to pick
up and 4Q13 to be the peak with
substantial condo transfers,
improving gross margins and a lower
SG&A ratio. FY14 is promising with
our sale revenue 50% secured by
backlog with a rejection rate of 5-7%.
What You Should Do
Buy on weakness. Downside risk is
limited given drastic consensus
downgrades while the outlook is set to
brighten. The risk-reward trade-off at
this point is compelling, in our view.
